Pawlenty: No need to raise the debt limit

posted at 2:50 pm on January 17, 2011 by Ed Morrissey

Tim Pawlenty comes up with an interesting “third way” on the issue of the debt ceiling that, assuming it gets signed into law, would keep the Treasury from borrowing more money while keeping the nation from a ruinous default. Of course, the operative if looms large here, which is to say that Barack Obama would have to enable Republicans to force the federal government into cuts in spending in every other area, while denying Obama any latitude in expanding programs like ObamaCare or further stimulus spending. It would be the ultimate pay-go scenario, but don’t expect Democrats to jump with joy over the idea:

In an interview with The Wall Street Journal Sunday and in an appearance on “Fox News Sunday,” Mr. Pawlenty challenged even leaders in his own party, who have said Congress must increase the federal debt ceiling rather than risk a default that could send interest rates skyrocketing and the economy back into recession.

Mr. Pawlenty said Congress should pass legislation that would put interest and debt payments ahead of other federal spending and allow the federal government to pay its creditors as tax revenue flows in. With the surge of tax payments that come in between April and June, that would at least buy time to try to cut spending dramatically, he said.

“This debate about how we’re going to restructure spending is inevitable. My view is, let’s have it now,” Mr. Pawlenty said in the Journal interview. “Let’s call their bluff.”

White House economists have said it would court economic disaster to use the debt ceiling, which is likely to be reached this spring, as a negotiating tool. Long-term interest rates remain at historically low levels, indicating no urgent need for dramatic austerity measures, they say, adding that such cuts in the short run would jeopardize the economic recovery.

Pawlenty also called on Obama to explain why he voted against an increase in the debt ceiling in 2006 and why such a vote shouldn’t be cast in 2010. At the time, Obama said that his vote was a protest against irresponsible spending, which certainly hasn’t decreased in the five years since. In fact, the FY2007 budget, which Congress debated at that time, spent $2.77 trillion dollars and had a deficit of $244 billion. The FY2010 budget, the last one passed by Congress and signed by Obama, spent $3.8 trillion with a deficit of $1.3 trillion, which are increases of 37% and 432%, respectively.

Even if Obama refuses to go along with that strategy, it’s still worth pursuing. The refusal to sequence spending to cover obligations first will show a lack of commitment to fiscal responsibility in the White House, and the hypocrisy of the pay-go posturing of Democrats last year (as if their waivers weren’t enough). It reframes the argument from disaster avoidance to irresponsible budgeting, which is exactly where the debate needs to go.

Note: I will be broadcasting live from Lifeway Christian Bookstore in Woodbury tomorrow starting at 11:30 CT on AM 1280 The Patriot, where Pawlenty will be signing copies of his new book Courage to Stand and discussing this and other issues with us.

Blowback

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Cut spending. Stop. Stop spending. Cut all budgets by 25% including entitlements such as social security and medicare. We are broke. There is no more money. New money is being printed. Look at the price of food and gas. Inflation is barreling down on us. Stop spending money we don’t have.

Repubs refuse to raise the debt limit and the Dems can’t demonize them because they just said it’s wrong to attack people personally for policy differences. I like how this could play out. If Obama says “holding us hostage” just ONCE, I’m ready to call him on it. Because taking hostages is at best a violent felony, and at worst terrorism.

My wife and I have been sequencing the spending for over 40 years and it seems to keep the heat and lights on.

fourdeucer on January 17, 2011 at 3:01 PM

Heck, we’ve all probably cut our spending over the past few years…It’s high time the government did too. The only problem with not increasing the debt ceiling is that I just don’t see congress cutting enough spending. It’s been tried time and time again…and neither party does well with that. Add in the US’s credit rating will plummet.

Isn’t this kind of like giving government IOUs to creditors, till we have the cash to pay them? Isn’t that what Illinois does?

a capella on January 17, 2011 at 2:55 PM

Not exactly. The idea is to pay our bondholders with our cash on hand before we pay for anything else. It’s basically prioritizing payments to avoid a technical default. However, that doesn’t mean under Pawlenty’s scheme that we won’t miss payments or have to hand out IOUs, it just won’t be on Treasury debt (bills, notes, bonds). It will be on things like payments to contractors for services rendered.

However, that doesn’t mean under Pawlenty’s scheme that we won’t miss payments or have to hand out IOUs, it just won’t be on Treasury debt (bills, notes, bonds). It will be on things like payments to contractors for services rendered.

Support for raising the debt ceiling is unanimous among the GOP leadership-in fact, their mouth pieces on Fox won’t even acknowledge that there is any other way. Of course, the Dems also favor raising the debt ceiling, while the public overwhelmingly opposes it.

That is what we are up against. Bipartisan opposition in Washington to the voters’ wishes, and bipartisan refusal to cut spending.

My main beef with Pawlenty has always been his lack of true leadership on issues. He has always seemed to wait and see where the wind blows, then weigh in as opposed to Palin who is out in front on virtually every issue.

On this, though, I like where he’s at. He might not be the first out in front, but at least he’s bringing some interesting ideas to the forefront early. Go Tim.

I’m glad that you linked this WSJ article and the video of Pawlenty’s ideas. They make fiscal sense and force Congress to deal with the realities of our nation’s purse. Raising the debt ceiling is irresponsible.

With priority given to bond holders? There isn’t enough to go around, with that the case, is there?

a capella on January 17, 2011 at 3:14 PM

Not even close. The Pawlently plan would avoid technical default, but would still have us stiffing creditors, just not the holders of our direct debt obligations. I have a feeling the rating agencies would only make that distinction for so long before they cut our credit ratings.

Not exactly. The idea is to pay our bondholders with our cash on hand before we pay for anything else. It’s basically prioritizing payments to avoid a technical default. However, that doesn’t mean under Pawlenty’s scheme that we won’t miss payments or have to hand out IOUs, it just won’t be on Treasury debt (bills, notes, bonds). It will be on things like payments to contractors for services rendered.

steebo77 on January 17, 2011 at 3:08 PM

So instead of cutting spending , the solution is to not pay the bills to contractors?

How stupid can it be to suggest that there is no urgency to reduce spending because interest rates are low right now?
We must substantially reduce spending right now.
We should not increase the debt level.

The federal government gets more than enough revenue to pay the interest in the debt… which eats up about 1/3 of revenue.

Now would be a great time to start shutting down entire departments.

End all contracts from those entities based on the Termination for Convenience of the government clause: T4C is part of every federal contract by mandate of the Federal Acquisition Regulations. There is no recourse to this, whatsoever. Governments get to do that.

Sell off the assets of the departments and agencies going away through the GAO or other government liquidation agency. Thus we get temporary income from those pieces going away, every bit helps.

Slash DoD by 25%, lengthen mainenance of ships at sea and change their patrol schedules so they don’t have to cover the entire planet. Any overseas base not part of the logistical supply chain for active operations can go away… so can bases in S. Korea, Japan, Germany… time for allies to take care of themselves.

End the frivolities: Ag, Ed, Energy, FCC, EPA, FDA, SEC, Fannie, Freddie, Sallie, Ginnie, NEA… a long list of excess agencies that are fun for Leftists, but not mandated by the Constitution.

Break up DHS and National Intelligence to component agencies, and slash things not directly related to border security and enforcement or overseas military operations.

Cut back on the IRS, and examine if we should even have a BATFE given the 2nd Amendment.

Obama can’t spend what he isn’t given, and the Federal Reserve can’t print for money when the deficit is zero.

Start the reform and eventual ending of SSA, Medicare and Medicaid.

Then abolish the entire tax code, including FICA and put in one, single flat tax with no exemptions or exclusions… do not go for anything that burdens businesses with tax collection. Think about every single individual who makes anything over $10k paying some tax, even a token $100, so that all share the burden of our Nation.

People are smoking something if they think social security and medicare are going to be slashed in a shocking way over the short-term. That has to be done slowly, and for what it’s worth, “death panels” will have to play a role as scarce medicare funds can’t be spent on lost causes.

Jailbones at 4:14
You have it in the wrong order, unless you are a class- warfare zealot.
First should be the cuts to the government itself, such as the departments you mention, and all of the federal employees that go with them.
Then some sort of means testing for social security and medicare could be acceptable, recognizing that such means testing is necessary but constitutes proof of the fraud committed by government on these most-likely hard working and successful citizens.

Isn’t this kind of like giving government IOUs to creditors, till we have the cash to pay them? Isn’t that what Illinois does?

a capella on January 17, 2011 at 2:55 PM

Not exactly. The idea is to pay our bondholders with our cash on hand before we pay for anything else. It’s basically prioritizing payments to avoid a technical default. However, that doesn’t mean under Pawlenty’s scheme that we won’t miss payments or have to hand out IOUs, it just won’t be on Treasury debt (bills, notes, bonds). It will be on things like payments to contractors for services rendered.

steebo77 on January 17, 2011 at 3:08 PM

That would be to avoid a monetary default, and would mean that the government might stiff junior creditors (i.e. any which do not have the full faith and credit of the government) in favor of senior creditors (bondholders).

A way around this would be to shut down enumerated and sequenced, non essential government functions before witholding payments to vendors.

In any event, a great and workable idea. I’m impressed. Pawlenty is no lightweight.

That would be to avoid a monetary default, and would mean that the government might stiff junior creditors (i.e. any which do not have the full faith and credit of the government) in favor of senior creditors (bondholders).

Which would still have a negative impact on our senior debt in the fixed-income markets, pushing Treasury yields higher, and, quite possibly, exerting downward pressure on the nation’s credit rating.

A way around this would be to shut down enumerated and sequenced, non essential government functions before witholding payments to vendors.

Unsecuritized obligations coming due would still need to be paid (if we cared at all about our perceived creditworthiness). Non-essential government functions could not be shut down fast enough to avoid non-payment.

In any event, a great and workable idea. I’m impressed. Pawlenty is no lightweight.

horatio on January 17, 2011 at 4:34 PM

How is stiffing creditors (regardless of seniority), closing things down willy-nilly in a crisis scenario, and jeopardizing our credit standing a workable idea?

So instead of cutting spending , the solution is to not pay the bills to contractors?

the_nile on January 17, 2011 at 3:30 PM

Bingo. Now here’s the kicker; there will still most-likely be somewhere around $340 billion in operating cash on hand when the default/default-by-another-name happens, and without direction from Congress, you know who will get stiffed first and hardest (hint; they drive Army green and Navy/Air Force gray).

Then there are millions of federal lands in the west and Alaska that need to be sold off. That will pay off a nice chunk of the debt.

Solvency is here. We are just too afraid of the statists to make it happen.

AshleyTKing on January 17, 2011 at 5:15 PM

I’m a big fan of leasing that federal land, over 50 years or so. Use the resulting money to buy out Social Security plans and pay down the debt. The use of the land would generate huge sums for local and state revenues, and the people getting paid would add to the federal revenues as well. So you’d really be cutting the debt from both sides, simultaneously.

Some of the land could also be used for a new Homestead Act, where we encouraged people in high-unemployment areas to move to undeveloped country and carve out a living for themselves.

Actually, Romney hasn’t been hiding. He’s been very vocal in his opposition to Obama’s financial irresponsibility and on government’s use of earmarks to enact more spending.

Conservative Samizdat on January 17, 2011 at 5:29 PM

What about the debt ceiling? That does seem to be the pressing issue at the moment, no? My guess is that Willard will, true to form, wait until the minute the last vote is cast to issue hiw “well-considered” position on the matter.

I’m a big fan of leasing that federal land, over 50 years or so. Use the resulting money to buy out Social Security plans and pay down the debt…

hawksruleva on January 17, 2011 at 5:25 PM

The problems are that 1) we don’t have a demand for that land so the lease rates would have to be low, 2) Federal land is generally in the wilderness and 3) dumping that much land would destroy what’s left of the housing market.

Tim Pawlenty comes up with an interesting “third way” on the issue of the debt ceiling that, assuming it gets signed into law, would keep the Treasury from borrowing more money while keeping the nation from a ruinous default.

Um, this is actually the “second way.” Default should be thought of as the “third way.”

Ed, why are you writing as if this concept is new to you? There’s no way you’ve missed dozens of us discussing this issue on these threads for weeks.